Why eBay CEO Doesn’t Fear Apple Payments

Wall Street analysts are convinced Apple will be getting into the mobile payments space soon. eBay CEO John Donahoe recently addressed the competitive threat PayPal could face if Apple does enter the market. And with shoppers increasingly using mobile devices to make purchases – eBay generated $22 billion through mobile devices in 2013 – it’s not surprising the topic arose at the recent Goldman Sachs Technology and Internet Conference where Donahoe was speaking.

“What is it about the payments space,” Goldman Sachs analyst Heath Terry asked, “that makes it so interesting for other companies like Apple and Google? And what kind of relationship can PayPal have with those kind of companies?”

Donahoe’s response: PayPal is a global payments platform that takes full accountability for both sides of the transaction and the risk. “I don’t think that’s a business a lot of people want to get into, because payments is a very hard business,” he said as he outlined the infrastructure and expertise PayPal has built up over time.

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But there was another factor that might not be as obvious when assessing a possible “Apple Payments” versus PayPal: the nature of the items being sold – specifically, physical goods versus digital goods.

“For a digital payment, if you buy something from me digitally, and you use my payment source, and say you never got the items” – two movies, was the example he used – “assume I can give you your money back at no risk to me, because I had no marginal cost in delivering the digital item.”

But, Donahoe continued, “If you bought a laptop from me and used my payment system” and the laptop got lost in the mail, “I have to refund your money, as a payment system. And then I’ve got to go find that laptop, ’cause I’m out that, and I need to settle up with the merchant, or I need to figure out how I’m going to deal with that.”

The world of physical payments is different from digital payments, Donahoe said. “Digital payments is an easier business.” And if you’re a mobile developer, it’s really easy to put PayPal on your mobile app, and it drives higher conversion on mobile apps, he said. He also said many mobile developers would use Braintree, acquired by eBay, as a payment method.

Donahoe also said PayPal had the best risk models in the world. “We have 2-, 3- 4-thousand people working on risk. Also, when you’re dealing with people’s money, people care about if something happens to their money. And if you’re guaranteeing it, you’ve gotta be able to be contactable. We’ve got 3-, 4- 5-thousand people doing customer support at PayPal.”

There’s a lot of focus on PayPal thanks to Carl Icahn’s efforts to force eBay to spin off its payments unit. The latest battle of words came on Monday when Icahn suggested two eBay board members resign immediately – see the EcommerceBytes Blog for more information.